Appeals Courts Rule Opposite Ways on ACA Subsidies

WASHINGTON -- Opposing rulings by two federal appeals courts Tuesday on the legality of subsidies for people purchasing insurance through the Affordable Care Act's federally run exchanges are almost certainly going to send the issue up to the Supreme Court, experts said.

In Washington, a three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled 2-1 that patients who purchase health insurance through one of the Affordable Care Act's (ACA) 36 federally run insurance exchanges are not eligible to receive subsidies through the federal government to pay for the insurance because of the way the subsidy provision was worded in the ACA.

"Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State,' we reverse the district court and vacate the IRS's [Internal Revenue Service's] regulation," wrote Judge Thomas Griffith of the U.S. Court of Appeals for the District of Columbia, on behalf of the three-judge panel.

The panels' decisions won't have any immediate effect on those currently receiving subsidies. But one expert told MedPage Today that the entire ACA may be "non-operable" if the subsidies on federally-run exchanges are ultimately thrown out.

A Particular ACA Provision

Both cases revolve around the wording of a particular provision of the Affordable Care Act -- known as provision 36B -- which explains how the subsidies are to be distributed.

"On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia," Judge Griffith wrote in the majority opinion for the D.C. case, known as Halbig v. Burwell. "But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act."

The plaintiffs in the case live in states whose governments did not establish state-run health insurance exchanges, and instead defaulted to the federally run exchange, the opinion continued. "The IRS's interpretation of section 36B makes them subject to certain penalties under the ACA that they would rather not face. Believing that the IRS's interpretation is inconsistent with section 36B, appellants challenge the regulation under the Administrative Procedure Act (APA), alleging that it is not 'in accordance with law.'"

The D.C. judges' opinion noted that the district court decision in the case came down against the plaintiffs, because it "held that the ACA's text, structure, purpose, and legislative history make 'clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges.'"

However, "We conclude that appellants have the better of the argument: a federal Exchange is not an 'Exchange established by the State,' and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges," the opinion said.

On the other hand, in the Fourth Circuit ruling in the case known as King v. Burwell, Judge Roger Gregory said that he and his fellow judges "find that the applicable statutory language [in the 36B provision] is ambiguous and subject to multiple interpretations. Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion."

Judge Gregory admitted that "There can be no question that there is a certain sense to the plaintiffs' position. If Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute."

However, he continued, "when conducting statutory analysis, "a reviewing court should not confine itself to examining a particular statutory provision in isolation. Rather, [t]he meaning – or ambiguity – of certain words or phrases may only become evident when placed in context."

Looking at the 36B provision in tandem with several other provisions in the law "provide[s] an equally plausible understanding of the statute, and one that comports with the IRS's interpretation that credits are available nationwide," he wrote.

Cheers and Criticism

Thomas Miller, JD, resident fellow at the American Enterprise Institute, a right-leaning think tank here, lauded the D.C. judges' opinion. "A couple of judges did their job," he told MedPage Today by phone. "They looked at a law as it was written -- the normal rules of statutory construction -- and decided no matter how much you tried to contort it ... their job was not to be a 'mini-Congress' and to rewrite it, but to enforce the law as written."

On the other hand, Timothy Jost, JD, the Robert L. Willett Family Professor of Law at Washington and Lee University in Lexington, Va., said in a phone interview that he was "disappointed but not surprised" by the decision. He noted that, at the hearing on the case, one member of panel, Judge A. Raymond Randolph, "bought everything the plaintiffs said. Judge Griffith was leaning toward the plaintiffs, but I was hoping after reviewing the briefs more carefully" he would lean the other way.

Jost disagreed with the idea of looking only at the 36B provision. "That's not the way courts normally read statutes; they have to look at it in context -- its purpose and history."

Michael Morrisey, PhD, director of the Lister Hill Center for Health Policy at the University of Alabama at Birmingham, said in an email that if the D.C. panel's ruling ends up being the prevailing one, "the effect ... is just short of what would have been the effect of the Court ruling that the ACA was unconstitutional. The vast majority of people getting coverage through the exchanges did so with a subsidy ... They would no longer be eligible and most are unlikely to continue to buy coverage at unsubsidized prices."

Moreover, he continued, "the majority of the states that didn't expand Medicaid also didn't implement a state-based exchange. It is unlikely that they will adopt one now. In my view the ACA effectively becomes non-operable, if the negative decision stands."

What Happens Next?

Although there is general agreement that the issue will wind up at the Supreme Court eventually, experts disagreed on what the next steps would be, especially in the Halbig case. The Obama administration said it will request a review of the Halbig decision by all 11 judges in the D.C. circuit, the majority of whom are Democratic appointees.

But Miller and Jost disagreed on whether the full D.C. circuit will agree to take the case "en banc," as it is known.

"En banc could be done, but there are federal rules for en banc reviews," Miller said. "An en banc review is extremely rare."

In fact, only 0.21% of all decisions made by three-judge panels on the D.C. circuit from 2000 to 2010 got an en banc review, Miller noted, citing a report by the Federal Bar Council. "There are reasons for that. Three judges are how you are supposed to handle these cases."

But Jost disagreed. "They review cases of exceptional importance [en banc], and I doubt there is any case of more exceptional importance before the D.C. circuit this year," he said, calling an en banc review "quite likely."

If an en banc review does occur, Jost predicted that the full court would consider the case from scratch, with new oral arguments and briefs from attorneys. "It will not get to the Supreme Court any time soon," he said.

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